Viewpoint: Why Kickstarter and Indiegogo Won’t Go Into Equity Crowdfunding
Wednesday, September 9, 2015
Now that anyone can now buy shares in a private company through an equity-crowdfunding platform, interested investors are wondering who will operate the online share-buying sites. Some observers have suggested that rewards-based crowdfunding platforms like Kickstarter and Indiegogo will enter the market, taking advantage of their experience in other parts of the crowdfunding marketplace.
However, I think reward-based crowdfunders are unlikely to enter the business, leaving the market to companies that have been set up explicitly to engage in the sale of shares to the crowd. Here’s why:
The types of investors who put money into reward-based crowdfunders aren’t the ones who will buy shares through equity crowdfunding – at least not at first. The Securities and Exchange Commission still has not written the rules for the version of equity crowdfunding that will operate under Title III of the Jumpstart Our Startups (JOBS) Act, and that’s the kind that would most appeal to people who have funded businesses and projects through rewards-based crowdfunding.
The new equity-crowdfunding platforms will be operating under Regulation A+, which allows non-accredited investors – people with less than $1 million in net worth or $200,000 per year in income – to make equity-crowdfunding investments. But Regulation A+ is too costly and time-consuming to be worthwhile for efforts to raise small amounts of money, crowdfunding experts David Freedman and Matthew Nutting explain in a recent article.Therefore, until the Title III rules are written, rewards-based crowdfunders won’t have the advantage of an established customer base to attract buyers to equity crowdfunding.